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What is a Good Credit Score

Thursday, July 15th, 2010

Q. What is a Good Credit Score?

A. First, let’s discover the full history of your credit score. One of the first credit organizations to utilize credit score ratings developed by Earl Issac and Bill Fair were Montgomery Wards and Carte Blanche.  The system they developed used math formulas to rate a person’s ability to pay back credit advanced to them against what they earned. This formula became known as a FICO score and is used by most lenders and appears on all credit agencies reports.

There are five parts to the calculation and each item is given a different classification.  35% of your credit rating score is determined by how you pay your bills.  If you have a good score but miss a payment, it will drop your rating considerably.  30% Is based upon how much you owe.  If you have a lot of balances that are almost at the limit, this will severely limit how much you need to afford your lifestyle and will lower your credit score.  If you are living from paycheck to paycheck, you are walking a serious debt line.

Also taken into consideration is how long you have been receiving credit (15%), how many times you have applied for credit elsewhere, incurring more debt (10%) and the kind of credit types you have, i.e., car loan, mortgage, credit cards (10%).

According to the myFICO.com web site, the median score in the United States is 723. About one third of Americans have scores between 550 and 700 while 7% have scores lower than that. 

Therefore, if your FICO score is under 700, you are in the bottom 7% of people!

This is a determining factor in how much you can afford to pay for something.  In applying for a mortgage, a person with a FICO score of 760 or more will pay $1,000 less in interest per year than someone with a lesser score, all because they have been determined to be able to afford it.

If your score is under 700, then you will need to improve it before applying for a mortgage. My score was in the mid to upper 500’s before I enrolled in Lexington Law. They got my score up to 745.

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What Is The Definition of a Charge-Off?

Monday, May 24th, 2010

If you found charge offs on your credit report, you may be asking yourself: What is the Definition of a Charge Off?

Rather than give you a raw definition of a charge off, consider this background: Every bank or other lending institution runs accounting reports at the end of every month to determine their profits and losses.   They track what sells and what doesn’t, what they make money on, and what choices have caused then to lose money.

When you are over 180 days (six months) over due in payment of a debt, such as a credit card, a car payment or a mortgage, you are determined to be in default of that loan, and are most likely not going to pay it.  The company will then declare your debt as a “charge off,” which alerts the credit reporting agencies that you have defaulted.   They are writing the debt off as “uncollectable” and will list you as such when it is time for the company file their federal income tax.

Even though it may be of no fault of your own, such as a job loss, illness, etc., you are still responsible for a debt you’ve incurred.  The company declaring a “charge-off” status does not release you from the debt, however.

You are still responsible for a charged off debt.

It may be in your best interest to try to work out a repayment plan, even if the debt has now gone to a collection agency for follow up.

A “charge-off” will reflect poorly on your credit report, showing as a negative report and lowering your credit score.  Next to a bankruptcy or judgment, it is the worst items you can have on your credit report.

It will remain on there for seven years and the only way to remove it from your credit report is to negotiate a payment plan with the creditor, wait it out, file credit bureau and/or creditor disputes.

When we sought approval from the bank for a home loan, I had about 6 charge offs on my credit report – from credit cards, utility bills, cell phone, and various other debts.

Once we hired lexington credit repair, the first items they deleted were the charge offs. You can read our entire story at www.creditforcouples.com.

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More Credit Repair Scams Exposed! Another Company Charged with Fraud

Thursday, February 25th, 2010

Yesterday we discussed how the Colorado Attorney General charged a credit repair company called Veracity Credit Consultants with various violations. You can see the details about Veracity Credit Repair here.

In another somewhat related story, we discovered that the city of Chicago charged nine different “credit repair companies” with fraud. You can check out the video here:

There is a common theme here with all these stories:

If you are looking for a credit repair company to help you with credit issues, you should avoid any company that charges a big up front fee.

This is the exact reason why we selected Lexington Law Firm to help us with our credit issues. There are no big up front fees and they have plans affordable for almost any budget. I liked that there is a small first work fee of $99, which is a bargain considering all they do for that small investment.

The other reason why we liked Lexington is simply because they offer a pay-as-you-go service. If you don’t like what they are doing, you simply cancel the service and move on.

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Veracity Credit Repair Sued by Colorado Attorney General

Tuesday, February 23rd, 2010

Veracity Credit Repair Consultants (www.veracitycredit.com) was sued by the Colorado Attorney General as reported by Bizjournals.com yesterday.

The credit repair company is accused of charging upfront fees for its services, which is illegal according to laws that govern credit repair companies. They are also accused of failing to disclose the total amount the service would cost.

I spent some time on the Veracity website and learned that this is a company that does not employ attorneys to perform the services. In other words, as a client of Veracity you are not getting any professional legal help for your case. Yet, it charges its clients the same fees as credit repair law firms!

Which would you rather hire: A non-attorney credit repair company or a credit repair law firm with decades of experience for the same price!?

The lawsuit against Veracity is unfortunate because it is another blemish against the credit repair industry. It means that legitimate credit repair law firms have to work that much harder to prove they are not a credit repair scam.

For details on how to choose a legitimate credit repair service, check out this article on how to avoid credit repair scams.

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Should I Close a Credit Card that is Paid Off?

Wednesday, February 17th, 2010

One member believes she made a terrible mistake by closing her two credit cards that are paid off. She is worried that closing the accounts may have lowered her score. Here is her question:

I have reviewed my credit report. I have two credit cards that I m paying on every month. One has a bal. of $2,400. or so and the other is under $400.00.

In the past I had several credit cards and they all all repoted to the credit bureaus “PAID NEVER LATE” however, the cards are closed at my request. I did not want to be in over my head in credit card balances. Now I feel I need to reopn or apply for one to show on the CBR’s that I have at least one c-card open.

Ben, I keep asking for advice. I know that your advice and time is part of your business. I can not recall what your charges are? Please have one of your rep’s call me.

Ben, I have so many legal questions on if I should leave the possitive paid and closed acct’s on my report or have thim removed they are old acct’s. Then there is the issue of a tax lein I have no Idea who reported it I have to go to San Joaquin clerks office and get that information. And last but not least I’m in the process of a home modification. which for sure loweres my score.

First, let’s address whether it was a mistake to close your credit card accounts. Although the credit bureaus keep their scoring formula TOP SECRET, they have publicly stated that keeping an unsecured bank card such as a Visa or Mastercard OPEN will help improve your score.

So, my suggestion is to get an unsecured revolving credit card account. Keep the card active but the balance low. In other words, it is good practice to use the card for small purchases and pay off the balance. That way you get the benefit of the credit score improvement along with avoiding interest payments.

Second, that is scary that a lien has popped up on your credit report. A lien could have resulted from any number of things such as a tax balance or any debt where the creditor went and obtained a judgment.

Since you don’t even know where it came from, my suggestion would be to dispute the accuracy immediately. You can do this yourself, or have a law firm like lexington law take care of it for you. There are benefits to both routes, but with something as damaging as a lien, I would consider a credit repair service, which is affordable and provides great service.

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Can I Delete Accurate Bad Credit Items?

Thursday, December 24th, 2009

If you have bad credit, you’ve probably heard the company line about how bad credit remains on your credit for at least 7 years.

No exceptions.

You surely are aware of people who refuse to wait 7 years for the information to “fall off”. Instead, they get proactive and delete information before the 7 years has expired.

Are you breaking the law by removing bad credit if you admit that the account may technically be accurate?

Are you sacrificing your ethics by disputing accounts you know belong to you?

Bad credit is NOT black and white. It is really a massive heap of gray area. You may be surprised to learn that you don’t have to wait 7 years to dispute and remove bad credit.

Learn more about how to legally dispute bad credit here.

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